Paying Staff

When we started out in 2005, I received some great advice from our bookkeeper: don't have employees. Instead, have subcontractors. 

These tips are legal and relevant in Ontario; it would be a logical extension to include the rest of Canada.  However, if you're in the States or Europe or Australia or Africa, you'd be wise to check first.

How it works: every staff member registers themselves as a business (about $60.)  Weekly, they submit an invoice for hours worked, which I pay immediately.  Some, who make over $30,000 per year, have to charge me GST (Goods and Services Tax,) which flows right from the GST we charge members.  There are benefits to the business owner, more benefits to the subcontractor, and even a few for your client.

For the subcontractor:

• They can deduct expenses that they'd normally incur for work - like some mileage, gas, car repairs, work-related 'toys' - and pay for them with pre-tax dollars.  Given that our income and other taxes add up to over 40% of our gross income, that's a significant savings.
• They own their own company, creating one more layer of liability protection.
• Even though their company has only one 'client' - your business, they still control their own destiny work-wise.  They also get to own something instead of just showing up for your sake.
• They can minimize their income tax burden by paying themselves an actual wage only if and when they feel like it.
• They can set their own schedule without being hamstrung by the legalities of the 3-hour pay minimum.

For you, the business owner:

• You're not making source deductions for the subcontractors, so you save a little bit on your EI (Employent Insurance) and CPP (Canada Pension Plan) contributions.
• Some of the rules of termination no longer apply; you can cancel a contract instead of going through the legal hoops of firing someone. Be careful, though; protect yourself.
• You can let subcontractors take a client here and there (nearly an industry necessity) instead of having to pay for a minimum 3 hours of work each time they show up. While I can understand the value of this rule in the retail world ("Can you come in for an hour?") it really hurts a Trainer's potential revenue stream.  If you're charging $50/hour for personal training, and the Trainer makes $20, and you have to pay them for two extra hours after the session's over, you don't have much reason to give them the client, do you?
• It's easier to manage payroll and track performance.
• You'll also enjoy an extra layer of protection from liability.  In fact, though I choose to insure our subcontractors, you can require that they have their own insurance.
• Either way, you don't have to pay WSIB (Workplace Safety Insurance Board) for a subcontractor, which in our case would be over $300/month.
• If they (or you) don't work, they don't eat. 
• The old, "whose clients ARE they?" problem is largely solved, making it easier to switch 1-on-1 clients between trainers during vacation times or in the event of one trainer's exit.

For the Client/Member:

• Being accountable to someone other than the Signor Of Cheques gives the Trainers a greater interest in your progress.
• You want your Trainer well-fed, rested, happy, and making lots of money.  It's in your best interest.
• They'll never know the difference, but they WILL know that their Trainer is among the highest-paid (read: best) around.  They can feel good about supporting a professional, instead of hiring a kid.

This has been a big boon to us, personally, as well:

• It's much easier to share income with my wife;
• Some household space (around 10%,) and the proportional share of utilities and consumables are paid with pre-tax income;
• I was able to 'sell' some personal sporting assets to the business, reducing its tax burden;
• Maintenance of one family vehicle (up to 50 cents per kilometre) is payable with before-tax income;
• Retirement plans and health care are paid by our Holdings company; again, pre-tax income.  That means a 40% savings in some instances.

We got lucky, at the beginning, to have shareholders who knew the difference, and Trainers who saw the light.  It may help you, too.

Comments

[Daniel]

This is so simple, yet so incredibly beneficial! Thank you for the great tips! Trying to run a business in the state of (ruin) California is a daunting task, this makes it that much easier!